LTC PROPERTIES INC – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, adopted pursuant to the Private
Securities Litigation Reform Act of 1995. Statements that are not purely
historical may be forward-looking. You can identify some of the forward-looking
statements by their use of forward-looking words, such as "believes," "expects,"
"may," "will," "could," "would," "should," "seeks," "approximately," "intends,"
"plans," "estimates" or "anticipates," or the negative of those words or similar
words. Forward-looking statements involve inherent risks and uncertainties
regarding events, conditions and financial trends that may affect our future
plans of operation, business strategy, results of operations and financial
position. A number of important factors could cause actual results to differ
materially from those included within or contemplated by such forward-looking
statements, including, but not limited to, our dependence on our operators for
revenue and cash flow; the duration and extent of the effects of the COVID-19
pandemic; government regulation of the health care industry; federal and state
health care cost containment measures including reductions in reimbursement from
third-party payors such as Medicare and Medicaid; required regulatory approvals
for operation of health care facilities; a failure to comply with federal,
state, or local regulations for the operation of health care facilities; the
adequacy of insurance coverage maintained by our operators; our reliance on a
few major operators; our ability to renew leases or enter into favorable terms
of renewals or new leases; the impact of inflation, operator financial or legal
difficulties; the sufficiency of collateral securing mortgage loans; an
impairment of our real estate investments; the relative illiquidity of our real
estate investments; our ability to develop and complete construction projects;
our ability to invest cash proceeds for health care properties; a failure to
qualify as a REIT; our ability to grow if access to capital is limited; and a
failure to maintain or increase our dividend. For a discussion of these and
other factors that could cause actual results to differ from those contemplated
in the forward-looking statements, please see the discussion under "Risk
Factors" contained in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2022 and in our publicly available filings with the Securities and
Exchange Commission. We do not undertake any responsibility to update or revise
any of these factors or to announce publicly any revisions to forward-looking
statements, whether as a result of new information, future events or otherwise.

Executive Overview

Business and Investment Strategy

We are a real estate investment trust ("REIT") that invests in seniors housing
and health care properties through sale-leaseback, financing receivables,
mortgage financing, joint ventures and structured finance solutions including
preferred equity and mezzanine lending. Our primary objectives are to create,
sustain and enhance stockholder equity value and provide current income for
distribution to stockholders through real estate investments in seniors housing
and health care properties managed by experienced operators.

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The following graph summarizes our gross investments as of March 31, 2023:

                           [[Image Removed: Graphic]]

Our primary seniors housing and health care property classifications include
skilled nursing centers ("SNF"), assisted living communities ("ALF"),
independent living communities ("ILF"), memory care communities ("MC") and
combinations thereof. We also invest in other ("OTH") types of properties, such
as land parcels, projects under development ("UDP") and behavioral health care
hospitals. To meet these objectives, we attempt to invest in properties that
provide opportunity for additional value and current returns to our stockholders
and diversify our investment portfolio by geographic location, operator,
property classification and form of investment.

We conduct and manage our business as one operating segment for internal
reporting and internal decision-making purposes. For purposes of this quarterly
report and other presentations, we generally include ALF, ILF, MC, and
combinations thereof in the ALF classification. As of March 31, 2023, seniors
housing and health care properties comprised approximately 99.3% of our gross
investment portfolio. We have been operating since August 1992.

Substantially all of our revenues and sources of cash flows from operations are
derived from operating lease rentals, interest earned on financing receivable,
interest earned on outstanding loans receivable and income from investments in
unconsolidated joint ventures. Income from our investments represent our primary
source of liquidity to fund distributions and are dependent upon the performance
of the operators on their lease and loan obligations and the rates earned
thereon. To the extent that the operators experience operating difficulties and
are unable to generate sufficient cash to make payments to us, there could be a
material adverse impact on our consolidated results of operations, liquidity
and/or financial condition. To mitigate this risk, we monitor our investments
through a variety of methods determined by property type and operator. Our
monitoring process includes periodic review of financial statements for each
facility, periodic review of operator credit, scheduled property inspections and
review of covenant compliance.

In addition to our monitoring and research efforts, we also structure our
investments to help mitigate payment risk. Some operating leases and loans are
credit enhanced by guaranties and/or letters of

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credit. In addition, operating leases are typically structured as master leases
and loans are generally cross-defaulted and cross-collateralized with other
loans, operating leases or agreements between us and the operator and its
affiliates.

Depending upon the availability and cost of external capital, we anticipate
making additional investments in health care related properties. New investments
are generally funded from cash on hand, proceeds from periodic asset sales,
temporary borrowings under our unsecured revolving line of credit and internally
generated cash flows. Our investments generate internal cash from rent and
interest receipts and principal payments on mortgage loans receivable. Permanent
financing for future investments, which replaces funds drawn under our unsecured
revolving line of credit, is expected to be provided through a combination of
public and private offerings of debt and equity securities. We could also look
to secured and unsecured debt financing. The timing, source and amount of cash
flows provided by financing activities and used in investing activities are
sensitive to the capital markets' environment, especially to changes in interest
rates. Changes in the capital markets' environment may impact the availability
of cost-effective capital.

We believe our business model has enabled and will continue to enable us to
maintain the integrity of our property investments, including in response to
financial difficulties that may be experienced by operators. Traditionally, we
have taken a conservative approach to managing our business, choosing to
maintain liquidity and exercise patience until favorable investment
opportunities arise.

COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of
coronavirus ("COVID-19") as a pandemic, and on March 13, 2020, the United States
declared a national emergency with regard to COVID-19. The COVID-19 pandemic has
had repercussions across regional and global economies and financial markets.
The outbreak of COVID-19 in many countries, including the United States, has
significantly and adversely impacted public health and economic activity, and
has contributed to significant volatility, dislocations and liquidity
disruptions in financial markets. On April 10, 2023, President Biden signed a
bill terminating the national emergency with regard to COVID-19.

The operations and occupancy levels at our properties have been adversely
affected by COVID-19 and could be further adversely affected by COVID-19 or
another pandemic especially if there are infections on a large scale at our
properties. The impact of COVID-19 has included, and another pandemic could
include, early resident move-outs, our operators delaying accepting new
residents due to quarantines, potential occupants postponing moves to our
operators' facilities, and/or hospitals cancelling or significantly reducing
elective surgeries thereby reducing the number of people in need of skilled
nursing care. Additionally, as our operators have responded to the pandemic,
operating costs have begun to rise. A decrease in occupancy, ability to collect
rents from residents, the failure of federal and state reimbursements to keep
pace with inflation and/or increase in operating costs could have a material
adverse effect on the ability of our operators to meet their financial and other
contractual obligations to us, including the payment of rent. In recognition of
the ongoing pandemic impact affecting our operators, we have agreed to provide
assistance in form of rent abatements and rent deferrals and will continue to
provide assistance as needed.

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Real Estate Portfolio Overview

The following tables summarize our real estate investment portfolio by owned
properties and mortgage loans and by property type, as of March 31, 2023 (dollar
amounts in thousands):

                                                                                                         Three Months Ended
                                                                                                           March 31, 2023
                                                      Number of                   Percentage                            Percentage
                                       Number of      SNF    ALF       Gross          of              Rental             of Total
Owned Properties                     Properties (1)  Beds   Units   Investments   Investments         Revenue            Revenues
Assisted Living                                  98      -  5,437  $     785,912         37.2 %  $          13,452            29.3 %
Skilled Nursing                                  50  6,113    236        591,305         28.0 %             14,331            31.2 %
Other (2)                                         1    118      -         12,005          0.6 %                252             0.5 %
Total Owned Properties                          149  6,231  5,673      1,389,222         65.8 %             28,035 (4)        61.0 %

                                                      Number of                   Percentage      Interest Income       Percentage
                                       Number of      SNF    ALF        Gross         of          from Financing         of Total
Financing Receivables                Properties (1)  Beds   Units    Investments  Investments       Receivable           Revenues
Assisted Living                                  11      -    523        121,321          5.8 %              2,345             5.1 %
Skilled Nursing                                   3    299      -         76,756          3.7 %              1,406             3.1 %
Total Financing Receivables                      14    299    523        198,077          9.5 %              3,751             8.2 %

                                                      Number of                   Percentage      Interest Income       Percentage
                                       Number of      SNF    ALF        Gross         of           from Mortgage         of Total
Mortgage Loans                       Properties (1)  Beds   Units    Investments  Investments          Loans             Revenues
Assisted Living                                  20      -   1056        167,573          7.9 %              2,760             6.0 %
Skilled Nursing                                  23  2,891      -        287,253         13.6 %              8,432            18.3 %
Other (3)                                         -      -      -          2,698          0.1 %                 52             0.1 %
Total Mortgage Loans                             43  2,891  1,056        457,524         21.6 %             11,244            24.4 %

                                                      Number of                   Percentage         Interest           Percentage
                                       Number of      SNF    ALF        Gross         of             and other           of Total
Notes Receivable                     Properties (1)  Beds   Units    Investments  Investments         Income             Revenues
Assisted Living                                   5      -    621         31,950          1.5 %              2,385             5.2 %
Skilled Nursing                                   -      -      -         14,986          0.7 %                167             0.4 %
Total Notes Receivable                            5      -    621         46,936          2.2 %              2,552             5.6 %

                                                      Number of                   Percentage        Income from         Percentage
                                       Number of      SNF    ALF        Gross         of          Unconsolidated         of Total
Unconsolidated Joint Ventures        Properties (1)  Beds   Units    Investments  Investments     Joint Ventures         Revenues
Assisted Living                                   1      -     95          6,340          0.3 %                112             0.2 %
Under Development                                 -      -      -         13,000          0.6 %                264             0.6 %
Total Unconsolidated Joint Ventures               1      -     95         19,340          0.9 %                376             0.8 %

Total Portfolio                                 212  9,421  7,968  $   2,111,099        100.0 %  $          45,958           100.0 %


                                   Number       Number of                  Percentage
                                     of         SNF    ALF      Gross          of
Summary of Properties by Type  Properties (1)  Beds   Units  Investments   Investments
Assisted Living                           135      -  7,732  $  1,113,096         52.7 %
Skilled Nursing                            76  9,303    236       970,300         46.0 %
Other (2) (3)                               1    118      -        14,703          0.7 %
Under Development                           -      -      -        13,000          0.6 %
Total Portfolio                           212  9,421  7,968  $  2,111,099        100.0 %

We have investments in owned properties, financing receivables, mortgage
(1) loans, notes receivable and unconsolidated joint ventures in 29 states to 30

operators.

(2) Includes three parcels of land held-for-use and one behavioral health care

hospital.

Includes one parcel of land in Missouri securing a first mortgage held for
(3) future development of a post-acute SNF and one parcel of land in North

Carolina securing a first mortgage held for future development of a seniors

housing community.

(4) Excludes variable rental income from lessee reimbursement of $3,284 and sold
    properties of $416.


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As of March 31, 2023, we had $1.7 billion in net carrying value of investments,
consisting of $1.0 billion or 58.2% invested in owned and leased properties,
$0.2 billion or 11.5% invested in financing receivables, $0.5 billion or 26.5%
invested in mortgage loans secured by first mortgages, $46.5 million or 2.7% in
notes receivable and $19.3 million or 1.1% in unconsolidated joint ventures.

Rental income, income from financing receivables and interest income from
mortgage loans represented 64.1%, 7.6% and 22.7%, respectively, of Total
revenues on the Consolidated Statements of Income for the three months ended
March 31, 2023. In most instances, our lease structure contains fixed annual
rental escalations and/or annual rental escalations that are contingent upon
changes in the Consumer Price Index. Certain leases have annual rental
escalations that are contingent upon changes in the gross operating revenues of
the property. This revenue is not recognized until the appropriate contingencies
have been resolved.

Many of our existing leases contain renewal options that, if exercised, could
result in the amount of rent payable upon renewal being greater or less than
that currently being paid. During 2023, Brookdale Senior Living Communities,
Inc. ("Brookdale") elected not to exercise its renewal option. Accordingly, the
master lease expires in December 2023. Additionally, during 2023, a master lease
covering two skilled nursing centers that was scheduled to mature in 2023 was
renewed at the contractual rate for another five years extending the maturity to
November 2028. The centers have a total of 216 beds and are located in Florida.

For the three months ended March 31, 2023, we recorded $0.5 million in
straight-line rental adjustment and amortization of lease incentive cost of $0.2
million. During the three months ended March 31, 2023, we received $32.4 million
of cash rental income, which includes $3.3 million of operator reimbursements
for real estate taxes. At March 31, 2023, the straight-line rent receivable
balance on the consolidated balance sheet was $21.2 million.

For the three months ended March 31, 2023, we recorded $11.2 million in Interest
income from mortgage loans which includes $9.3 million of interest received in
cash, $0.6 million of income from interest reserves and $1.3 million in mortgage
loans effective interest. At March 31, 2023, the mortgage loans effective
interest receivable which is included in the Interest receivable line item in
our Consolidated Balance Sheets was $48.1 million.

Update on Certain Operators

Anthem Memory Care

Anthem Memory Care ("Anthem") operates 11 memory care communities under a master
lease and was placed in default in 2017 resulting from Anthem's partial payment
of its minimum rent. However, we did not enforce our rights and remedies
pertaining to the event of default, under the stipulation that Anthem achieves
sufficient performance and pays agreed upon rent. Anthem increased their rent
payment every year between 2017 and 2021. During the second and third quarter of
2022, we agreed to a certain temporary rent reduction totaling $1.5 million.
During the fourth quarter of 2022, we received payment of Anthem's $1.5 million
temporary rent reduction and a return to Anthem's previously agreed upon rent of
$0.9 million per month. Accordingly, Anthem paid us the agreed upon annual cash
rent of $10.8 million in 2022 and we anticipate receiving $10.8 million in 2023.
During the 2023 first quarter, we transitioned a 60-unit memory care community
located in Ohio to Anthem under a new two-year lease. Under the new two-year
lease, no rent will be paid through May 2023 after which cash rent will be based
on mutually agreed upon fair market rent. Anthem is current on agreed upon rent
payments through April 2023. We receive regular financial performance updates
from Anthem and continue to monitor their performance obligations under the

master lease agreement.

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Brookdale Senior Living Communities, Inc

Brookdale Senior Living Communities, Inc's ("Brookdale") master lease matures on
December 31, 2023 and provided Brookdale a $4.0 million capital commitment,
which matured on February 28, 2023, at a yield of 7% with a reduced rate for
qualified ESG projects. During the first quarter of 2023, we funded $0.9 million
under Brookdale's capital commitment. The master lease provides three renewal
options consisting of a two-year renewal option, a five-year renewal option and
a 10-year renewal option. During the first quarter of 2023, Brookdale elected
not to exercise its renewal option. Brookdale is obligated to pay rent on the
portfolio of 35 assisted living communities through maturity and is current on
rent payments through April 2023. We plan to sell approximately half of the
properties in the Brookdale portfolio while re-leasing the other half.

Prestige Healthcare

Prestige Healthcare ("Prestige") operates 22 skilled nursing centers located in
Michigan secured under four mortgage loans and two skilled nursing centers
located in South Carolina under a master lease. Prestige is our largest operator
based upon revenues and assets representing 16.4% of our total revenues and
14.7% of our total assets as of March 31, 2023. Subsequent to March 31, 2023, we
agreed to defer up to $1.5 million in interest payments due on one of Prestige's
mortgage loans secured by 15 skilled nursing centers. The deferral will be
available from May to September 2023 capped at $0.3 million per month.

Other Operators

During the quarter ended March 31, 2023, we provided $0.5 million of abated rent
to the same operator for which we have been providing assistance. Also, we
provided the same operator $0.2 million of abated rent in April 2023 and we
agreed to provide up to $0.2 million for each of May and June 2023. We
anticipate receiving $0.3 million in rent during 2023 from this operator.

Subsequent to March 31, 2023, we agreed to defer each of April and May 2023 rent
of $0.5 million under a master lease on eight assisted living communities with a
total of 500 units. The communities are located in Ohio, Michigan and Illinois.
We are in the process of transitioning this portfolio to an existing operator
and expect to complete the transaction during the second quarter of 2023. After
the portfolio is transitioned cash rent will be based on mutually agreed fair
market rent.

2023 Activities Overview

The following tables summarize our transactions during the three months ended
March 31, 2023 (dollar amounts in thousands):

Investment in Improvement projects

                             Amount
Assisted Living Communities  $ 1,548
Skilled Nursing Centers          973
Other                             87
Total                        $ 2,608


Impairment Charges

In conjunction with the sale of a 70-unit assisted living community located in
Florida, we recorded a $0.4 million impairment loss during the three months
ended March 31, 2023 and a $1.2 million impairment loss during the fourth
quarter of 2022. Subsequent to March 31, 2023, the community was sold for $4.9
million. As of March 31, 2023, the community was classified as held-for-sale.

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Properties Sold

               Type       Number      Number
                of          of          of        Sales     Carrying      

Net

  State     Properties  Properties  Beds/Units    Price      Value      Gain (2)
 Kentucky      ALF               1          60  $ 11,000  $   10,710  $       72
New Mexico     SNF               2         235    21,250       5,379      15,301
  Total                          3         295  $ 32,250  $   16,089  $   15,373

(1) Subsequent to March 31, 2023, we sold a 70-unit assisted living community

located in Florida for $4,850.

(2) Calculation of net gain includes cost of sales and write-off of straight-line

receivable and lease incentives, when applicable.

Financing Receivables.

During 2023, we entered into a $121.3 million JV with an affiliate of an
existing operator and contributed $117.9 million into the JV that purchased 11
assisted living and memory care communities from an affiliate of our JV partner.
The JV leased the communities back to an affiliate of the seller under a 10-year
master lease, with two five-year renewal options. The contractual initial cash
yield of 7.25% increases to 7.5% in year three then escalates thereafter based
on CPI subject to a floor of 2.0% and a ceiling of 4.0%. Additionally, the JV
provided the seller-lessee with a purchase option to buy up to 50% of the
properties at the beginning of the third lease year and the remaining properties
at the beginning of the fourth lease year through the end of the sixth lease
year, with an exit Internal Rate of Return ("IRR") of 9.0%. In accordance with
GAAP, the communities acquired by the JV are required to be presented as
Financing receivables on our Consolidated Balance Sheets and the rental revenue
from these properties is recorded as Interest income from financing receivables
on our Consolidated Statements of Income. Furthermore, upon expiration of the
purchase option if the purchase option remains unexercised by the seller-lessee,
the purchased assets will be reclassified from Financing receivables to Real
property investments on our Consolidated Balance Sheets. Upon origination, we
recorded $1.2 million Provision for credit losses equal to 1% of the loan
balance related to this transaction during the three months ended March 31,
2023.

Investment in Mortgage Loans

Originations and funding under mortgage loans receivable $ 62,844 (1)
Application of interest reserve

                              1,149
Scheduled principal payments received                        (125)
Mortgage loan premium amortization                             (2)
Provision for loan loss reserve                              (639)
Net increase in mortgage loans receivable                 $ 63,227

We originated a $10,750 mortgage loan secured by a 45-unit MC located in

North Carolina. The loan carries a two-year term with an interest-only rate

of 7.25% and an IRR of 9.0%. Additionally, we invested $51,111 in an existing

mortgage loan secured by a 203-unit ILF, ALF and MC located in Georgia by
(1) acquiring a participating interest owned by existing lenders for $42,251 in

addition to converting our $7,461 mezzanine loan in the property into a

participating interest in the mortgage loan. The initial rate is 7.5% with an

IRR of 7.75%. The mortgage loan matures in October 2024. We recorded $1,380

of additional interest income in connection with the effective prepayment of

    the mezzanine loan in the first quarter of 2023.


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Preferred Equity Investment in Unconsolidated Joint Ventures

                    Type        Total       Contractual       Number                                      Cash       Application
                     of       Preferred        Cash             of          Carrying       Income       Interest     of Interest
State            Properties    Return         Portion       Beds/ Units      Value       Recognized     Received       Reserve
Washington (1)     ALF/MC            12 %             7 %            95   $    6,340   $        112            -   $         112
Washington (2)      UDP              14 %             8 %             -       13,000            264            -             264
                                                                     95   $   19,340   $        376   $        -   $         376

Represents a preferred equity interest in an entity that developed and owns a

95-unit ALF and MC in Washington. Our investment represents 15.5% of the

total investment. The preferred equity investment earns an initial cash rate

of 7% increasing to 9% in year four until the internal rate of return ("IRR")
(1) is 8%. After achieving an 8% IRR, the cash rate drops to 8% until achieving

    an IRR ranging between 12% to 14%, depending upon timing of redemption.
    During the fourth quarter of 2021, the entity completed the development
    project and received its certificate of occupancy. We have the option to

require the JV partner to purchase our preferred equity interest at any time

between August 17, 2031 and December 31, 2036.

Represents a preferred equity interest in an entity that will develop and own

a 267-unit ILF and ALF in Washington. Our investment represents 11.0 % of the

estimated total investment. The preferred equity investment earns an initial

cash rate of 8% with an IRR of 14%. The JV partner has the option to buy out
(2) our investment at any time after August 31, 2023 at the IRR rate. Also, we

have the option to require the JV partner to purchase our preferred equity

interest at any time between August 31, 2027 and, upon project completion and

leasing the property, prior to the end of the first renewal term of the

    lease.


Notes Receivable

Advances under notes receivable                       $      605

Principal payments received under notes receivable (12,641) (1)
Provision (recovery) for credit losses

                       120
Net increase in notes receivable                      $ (11,916)

During 2023, we received $4,545, which includes a prepayment fee and the exit

IRR totaling $190 from a mezzanine loan prepayment. The mezzanine loan was on

a 136-unit ILF in Oregon. Additionally, another $7,461 mezzanine loan was
(1) effectively prepaid through converting it as part of our $51,111 investment

in a participating interest in an existing mortgage loan that is secured by a

203-unit ALF, ILF and MC located in Georgia. We recorded $1,380 of interest

income related to in connection with the effective prepayment of the

    mezzanine loan.


Health Care Regulatory

The Centers for Medicare & Medicaid Services ("CMS") annually updates Medicare
skilled nursing facility ("SNF") prospective payment system rates and other
policies. On April 8, 2021, CMS issued a proposed rule to update SNF rates and
policies for fiscal year 2022, which started October 1, 2021, and issued the
final rule on July 29, 2021. CMS estimated that the aggregate impact of the
payment policies in the final rule would result in an increase of approximately
$410 million in Medicare Part A payments to SNFs in fiscal year 2022. The final
rule also includes several policies that update the SNF Quality Reporting
Program and the SNF Value-Based Program for fiscal year 2022. On April 11, 2022,
CMS issued a proposed rule to update SNF rates and policies for fiscal year
2023. CMS estimated that the aggregate impact of the payment policies in the
proposed rule would result in a decrease of approximately $320 million in
Medicare Part A payments to SNFs in fiscal year 2023 compared to fiscal year
2022. CMS also sought input on the effects of direct care staffing requirements
to improve long-term care requirements for participation and promote thoughtful,
informed staffing plans and decisions within facilities to meet residents'
needs, including maintaining or improving resident function and quality of life.
Specifically, CMS sought input on establishing minimum staffing requirements for
long-term care facilities. On June 29, 2022, CMS issued updates to guidance on
minimum health and safety standards that long-term care facilities must meet to
participate in Medicare and Medicaid, and updated and developed new guidance in
the State Operations Manual to address issues that significantly affect
residents of long-term care facilities. On July 29, 2022, CMS issued a final
rule to update SNF rates and policies for fiscal year 2023. CMS estimated that
the aggregate impact of the payment policies in the final

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rule would result in an increase of 2.7%, or approximately $904 million, in
Medicare Part A payments to SNFs in fiscal year 2023 compared to fiscal year
2022. CMS also finalized a permanent 5% cap on annual wage index decreases to
smooth year-to-year changes in providers' wage index payments. In addition, CMS
indicated that it would continue to review the comments it received in response
to its request for information on establishing minimum staffing requirements for
long-term care facilities, and that it intends to issue proposed rules on a
minimum staffing level measure within one year. On April 4, 2023, CMS issued a
proposed rule that would update SNF rates and policies for fiscal year 2024. CMS
estimated that the aggregate impact of the payment policies in the proposed rule
would result in a net increase of 3.7%, or approximately $1.2 billion, in
Medicare Part A payments to SNFs in fiscal year 2024. CMS also indicated that it
continues to review the feedback it received from its comment solicitation
regarding minimum staffing requirements and that the feedback would be used,
along with evidence from its mixed-methods study launched in August 2022
collecting quantitative and qualitative evidence on staffing levels within
nursing homes, to inform proposals for minimum direct care staffing requirements
in nursing homes in rulemaking in spring 2023.

There can be no assurance that these rules or future regulations modifying
Medicare skilled nursing facility payment rates or other requirements for
Medicare and/or Medicaid participation will not have an adverse effect on the
financial condition of our borrowers and lessees which could, in turn, adversely
impact the timing or level of their payments to us.

Since the announcement of the COVID-19 pandemic and beginning as of March 13,
2020, CMS has issued numerous temporary regulatory waivers and new rules to
assist health care providers, including SNFs, respond to the COVID-19 pandemic.
These include waiving the SNF 3-day qualifying inpatient hospital stay
requirement, flexibility in calculating a new Medicare benefit period, waiving
timing for completing functional assessments, waiving requirements for health
care professional licensure, survey and certification, provider enrollment, and
reimbursement for services performed by telehealth, among many others. CMS also
announced a temporary expansion of its Accelerated and Advance Payment Program,
which granted providers the ability to request accelerated or advance Medicare
Part A payments and up to one year to make repayments. In addition, CMS enhanced
requirements for nursing facilities to report COVID-19 infections to local,
state and federal authorities. On February 9, 2023, HHS Secretary Becerra
announced that, effective February 11, 2023, he was renewing the declared public
health emergency for an additional 90-day period, and that HHS was planning for
this to be the final renewal of the declared public health emergency, which
would end on May 11, 2023. Separate from the declared public health emergency,
on April 10, 2023, President Biden signed into law H.J. Res. 7, which terminates
the national emergency related to the COVID-19 pandemic.

On March 26, 2020, President Trump signed into law the Coronavirus Aid, Relief,
and Economic Security Act (the "CARES Act"), sweeping legislation intended to
bolster the nation's response to the COVID-19 pandemic. In addition to offering
economic relief to individuals and impacted businesses, the law expands coverage
of COVID-19 testing and preventative services, addresses health care workforce
needs, eases restrictions on telehealth services during the crisis, and
increases Medicare regulatory flexibility, among many other provisions. Notably,
the CARES Act temporarily suspended the 2% across-the-board "sequestration"
reduction during the period May 1, 2020 through December 31, 2020, and extended
the Medicare sequester requirement through fiscal year 2030. In addition, the
law provides $100 billion in grants to eligible health care providers for health
care related expenses or lost revenues that are attributable to COVID-19. On
April 10, 2020, CMS announced the distribution of $30 billion in funds to
Medicare providers based upon their 2019 Medicare fee for service revenues.
Eligible providers were required to agree to certain terms and conditions in
receiving these grants. In addition, the Department of Health and Human Services
("HHS") authorized $20 billion of additional funding for providers that have
already received funds from the initial distribution of $30 billion. Unlike the
first round of funds, which came automatically, providers were required to apply
for these additional funds and submit the required

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supporting documentation, using the online portal provided by HHS. Providers
were required to attest to and agree to specific terms and conditions for the
use of such funds. HHS expressed a goal of allocating the whole $50 billion
proportionally across all providers based on those providers' proportional share
of 2018 net Medicare fee-for-service revenue, so that some providers would not
be eligible for additional funds. On May 22, 2020, HHS announced that it had
begun distributing $4.9 billion in additional relief funds to SNFs to offset
revenue losses and assist nursing homes with additional costs related to
responding to the COVID-19 public health emergency and the shipments of personal
protective equipment provided to nursing homes by the Federal Emergency
Management Agency. On June 9, 2020, HHS announced that it expected to distribute
approximately $15 billion to eligible providers that participate in state
Medicaid and Children's Health Insurance Program ("CHIP") programs and have not
received a payment from the Provider Relief Fund General Allocation. On July 22,
2020, HHS announced $5 billion in Provider Relief Funds to Medicare-certified
long-term care facilities and state veterans' homes to build nursing home skills
and enhance nursing homes' response to COVID-19, including enhanced infection
control. Nursing homes were required to participate in the Nursing Home COVID-19
training to qualify for this funding. On August 27, 2020, HHS announced that it
had distributed almost $2.5 billion to nursing homes to support increased
testing, staffing, and personal protective equipment needs. On September 3,
2020, HHS announced a $2 billion performance-based incentive payment
distribution to nursing homes and SNFs. Finally, on October 1, 2020, HHS
announced $20 billion in additional funding for several types of providers,
including those who previously received, rejected, or accepted a general
distribution provider relief fund payment. The application deadline for these
Phase 3 funds was November 6, 2020.

The Consolidated Appropriations Act, 2021 included a $900 billion COVID-19
relief package. Of the $900 billion in COVID-19 relief, $73 billion was
allocated to HHS. Notably, the legislation adds an additional $3 billion to the
Provider Relief Fund, includes language specific to reporting requirements, and
allows providers to use any reasonable method to calculate lost revenue,
including the difference between such provider's budgeted and actual revenue
budget if such budget had been established and approved prior to March 27, 2020,
to demonstrate entitlement for these funds. This change reverts to HHS' previous
guidance from June 2020 on how to calculate lost revenues. The Consolidated
Appropriations Act, 2021 also extended the CARES Act's sequestration suspension
to March 31, 2021. On January 15, 2021, HHS announced that it would be amending
the reporting timeline for Provider Relief Funds and indicated that it was
working to update the Provider Relief Fund requirements to be consistent with
the passage of the Consolidated Appropriations Act, 2021.

On June 11, 2021, HHS issued revised reporting requirements for recipients of
Provider Relief Fund payments. The announcement included expanding the amount of
time providers would have to report information, aimed to reduce burdens on
smaller providers, and extended key deadlines for expending Provider Relief Fund
payments for recipients who received payments after June 30, 2020. The revised
reporting requirements are applicable to providers who received one or more
payments exceeding, in the aggregate, $10,000 during a single Payment Received
Period from the PRF General Distributions, Targeted Distributions, and/or
Skilled Nursing Facility and Nursing Home Infection Control Distributions. On
July 1, 2021, HHS, through the Health Resources and Services Administration
("HRSA"), notified recipients of Provider Relief Fund payments by e-mail that
the Provider Relief Fund Reporting Portal was open for recipients who were
required to report on the use of funds in Reporting Period 1, as described by
HHS's June 11, 2021 update to the reporting requirements. On September 10, 2021,
HHS announced a final 60-day grace period of the September 30, 2021 reporting
deadline for Provider Relief Funds exceeding $10,000 in aggregate payments
received from April 10, 2020 to June 30, 2020. Although the September 30, 2021
reporting deadline remained in place, HHS explained that recoupment or other
enforcement actions would not be initiated during the 60-day grace period, which
began on October 1, 2021 and ended on November 30, 2021.

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Reporting Period 2, for providers who received one or more payments exceeding
$10,000, in the aggregate, from July 1, 2020 to December 31, 2020, was from
January 1, 2022 to March 31, 2022. Reporting Period 3, for providers who
received one or more payments exceeding $10,000, in the aggregate, from January
1, 2021 to June 30, 2021, was from July 1, 2022 to September 30, 2022. Reporting
Period 4, for providers who received one or more payments exceeding $10,000, in
the aggregate, from July 1, 2021 to December 31, 2021, was from January 1, 2023
to March 31, 2023. Reporting Period 5, for providers who received one or more
payments exceeding $10,000, in the aggregate, from January 1, 2022 to June 30,
2022, opens July 1, 2023.

On September 10, 2021, the Biden Administration announced $25.5 billion in new
funding for health care providers affected by the COVID-19 pandemic, including
$8.5 billion in American Rescue Plan ("ARP") resources for providers who serve
rural Medicaid, CHIP, or Medicare patients, and an additional $17 billion for
Phase 4 Provider Relief Funds for a broad range of providers who can document
revenue loss and expenses associated with the pandemic, including assisted
living facilities that were state-licensed/certified on or before December 31,
2020. Approximately 25% of the Phase 4 allocation was for bonus payments based
on the amount and type of services provided to Medicaid, CHIP, and Medicare
beneficiaries from January 1, 2019 through September 30, 2020. On December 14,
2021, HHS announced the distribution of approximately $9 billion in Provider
Relief Fund Phase 4 payments to health care providers who have experienced
revenue losses and expenses related to the COVID-19 pandemic. Further, on
January 25, 2022, HHS announced that it would be making more than $2 billion in
Provider Relief Fund Phase 4 General Distribution payments to more than 7,600
providers across the country that same week. On March 22, 2022, HHS announced an
additional $413 million in Provider Relief Fund Phase 4 payments to more than
3,600 providers across the country. Finally, on April 13, 2022, HRSA announced
the disbursement of more than $1.75 billion in Provider Relief Fund payments to
3,680 providers across the country.

Following prior legislation in 2021 suspending sequestration, on December 10,
2021, President Biden signed the Protecting Medicare and American Farmers from
Sequester Cuts Act, which suspended the Medicare 2% sequestration reduction
through March 31, 2022, and then reduced the sequestration cuts to 1% from April
through June 2022. As of July 1, 2022, cuts of 2% were re-imposed.

Congress periodically considers legislation revising Medicare and Medicaid
policies, including legislation that could have the impact of reducing Medicare
reimbursement for SNFs and other Medicare providers, limiting state Medicaid
funding allotments, encouraging home and community-based long-term care services
as an alternative to institutional settings, or otherwise reforming payment
policy for post-acute care services. There can be no assurances that enacted or
future legislation will not have an adverse impact on the financial condition of
our lessees and borrowers, which subsequently could materially adversely impact
our company.

Additional reforms affecting the payment for and availability of health care
services have been proposed at the federal and state level and adopted by
certain states. Increasingly, state Medicaid programs are providing coverage
through managed care programs under contracts with private health plans, which
is intended to decrease state Medicaid costs. State Medicaid budgets may
experience shortfalls due to increased costs in addressing the COVID-19
pandemic. Congress and state legislatures can be expected to continue to review
and assess alternative health care delivery systems and payment methodologies.
Changes in the law, new interpretations of existing laws, or changes in payment
methodologies may have a dramatic effect on the definition of permissible or
impermissible activities, the relative costs associated with doing business and
the amount of reimbursement by the government and other third-party payors.

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Key Performance Indicators, Trends and Uncertainties

We utilize several key performance indicators to evaluate the various aspects of
our business. These indicators are discussed below and relate to concentration
risk and credit strength. Management uses these key performance indicators to
facilitate internal and external comparisons to our historical operating results
in making operating decisions and for budget planning purposes.

Concentration Risk. We evaluate by gross investment our concentration risk in
terms of asset mix, real estate investment mix, operator mix and geographic mix.
Concentration risk is valuable to understand what portion of our real estate
investments could be at risk if certain sectors were to experience downturns.
Asset mix measures the portion of our investments that are real property or
mortgage loans. The National Association of Real Estate Investment Trusts
("NAREIT"), an organization representing U.S. REITs and publicly traded real
estate companies, classifies a company with 50% or more of assets directly or
indirectly in the equity ownership of real estate as an equity REIT. Investment
mix measures the portion of our investments that relate to our various property
classifications. Operator mix measures the portion of our investments that
relate to our top five operators. Geographic mix measures the portion of our
real estate investment that relate to our top five states.

The following table reflects our recent historical trends of concentration risk
(gross investment, in thousands):

                                      3/31/23      12/31/22       9/30/22       6/30/22       3/31/22
Asset mix:
Real property                       $ 1,389,222   $ 1,410,705   $ 1,408,402   $ 1,409,937   $ 1,409,625
Financing receivables                   198,077        76,767        76,267             -             -
Loans receivable                        457,524       393,658       386,868       383,647       350,037
Notes receivable                         46,936        58,973        59,014        58,794        62,127

Unconsolidated joint ventures            19,340        19,340        19,340

       19,340        19,340
Real estate investment mix:
Assisted living communities         $ 1,113,096   $   951,441   $   945,552   $   942,581   $   956,642
Skilled nursing centers                 970,300       980,401       976,753       901,911       858,150
Other (1)                                14,703        14,601        14,586        14,226        13,337
Under development                        13,000        13,000        13,000        13,000        13,000
Operator mix:
ALG Senior                          $   326,288   $   192,699   $   189,533   $   110,075   $    76,715
Prestige Healthcare (1)                 271,904       271,476       271,851       271,853       272,326
HMG Healthcare                          176,285       175,835       174,107       175,532       180,662
Anthem Memory Care                      155,629       139,176       139,176       139,176       139,176
Brookdale Senior Living                 106,921       106,010       104,461       103,831       103,136
Remaining operators                   1,074,072     1,074,247     1,070,763     1,071,251     1,069,114
Geographic mix:
Texas                               $   328,442   $   327,490   $   325,380   $   326,983   $   274,803
Michigan                                280,294       280,389       280,932       280,934       281,407
North Carolina (2)                      232,841        99,646        95,456        92,639        59,217
Florida                                 159,461       158,892       158,175        81,525        80,815
Wisconsin                               114,838       114,838       114,838       114,729       114,729
Remaining states (2)                    995,223       978,188       975,110       974,908     1,030,158

(1) Includes three parcels of land located adjacent to properties securing the

    Prestige Healthcare mortgage loan and are managed by Prestige.


    During the three months ended March 31, 2023, as a result of recent

transactions, Colorado is no longer a top five state under our geographic mix
(2) and is replaced by North Carolina. Accordingly, our "North Carolina"

properties were reclassified from "Remaining states" and our "Colorado"

properties were reclassified to "Remaining States" for all periods presented.

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Credit Strength. We measure our credit strength both in terms of leverage ratios
and coverage ratios. Our leverage ratios include debt to gross asset value and
debt to market capitalization. The leverage ratios indicate how much of our
Consolidated Balance Sheets capitalization is related to long-term obligations.
Our coverage ratios include interest coverage ratio and fixed charge coverage
ratio. The coverage ratios indicate our ability to service interest and fixed
charges (interest). The coverage ratios are based on earnings before interest,
taxes, depreciation and amortization for real estate ("EBITDAre") as defined by
NAREIT. EBITDAre is calculated as net income available to common stockholders
(computed in accordance with GAAP) excluding (i) interest expense, (ii) income
tax expense, (iii) real estate depreciation and amortization, (iv) impairment
write-downs of depreciable real estate, (v) gains or losses on the sale of
depreciable real estate, and (vi) adjustments for unconsolidated partnerships
and joint ventures. Leverage ratios and coverage ratios are widely used by
investors, analysts and rating agencies in the valuation, comparison, rating and
investment recommendations of companies. The following table reflects the recent
historical trends for our credit strength measures:

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